Adding my name to deed (parents house)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
wcombat1911
Posts: 25
Joined: Fri Oct 07, 2016 10:09 pm

Adding my name to deed (parents house)

Post by wcombat1911 » Thu Jun 07, 2018 7:38 am

My parents currently have 2 homes. Grandma currently lives in house #1 and they live in house #2. They will be moving back to house #1 soon because grandma will be requiring some at home care.

I have been living in house #2 with them up until about a month ago when I got married. My wife and I will be moving in once they leave, however because of some strict association rules, I cannot be a renter because the community already hit its % of renters to owners ratio.

My father said he would have to add me to the deed to avoid issues with HOA. I will be assuming all costs including mortgage, HOA, etc.

The house is worth about 180K, but owes around 230k. He purchased at market peak but that’s another story. Would adding my name to the deed make this my debt? I plan on opening a practice in about 2 years and do not want a home loan to impact my ability to get lending from a bank.

Any tax repercussions for any of us by doing this? Any reccomendations?

Wellfleet
Posts: 486
Joined: Sun Jan 26, 2014 8:18 pm

Re: Adding my name to deed (parents house)

Post by Wellfleet » Thu Jun 07, 2018 8:08 am

Would it make more sense to for the parents to sell the house and you get your own place?

It's not clear to me why you would want to be somewhat responsible for a underwater house?

Jack FFR1846
Posts: 8065
Joined: Tue Dec 31, 2013 7:05 am

Re: Adding my name to deed (parents house)

Post by Jack FFR1846 » Thu Jun 07, 2018 8:11 am

Couldn't you move in and pay no rent? You used to live there so I'd think that you wouldn't raise any real commotion with neighbors.
Bogle: Smart Beta is stupid

LarryAllen
Posts: 1131
Joined: Fri Apr 22, 2016 9:41 am
Location: State of Confusion

Re: Adding my name to deed (parents house)

Post by LarryAllen » Thu Jun 07, 2018 8:13 am

wcombat1911 wrote:
Thu Jun 07, 2018 7:38 am
My parents currently have 2 homes. Grandma currently lives in house #1 and they live in house #2. They will be moving back to house #1 soon because grandma will be requiring some at home care.

I have been living in house #2 with them up until about a month ago when I got married. My wife and I will be moving in once they leave, however because of some strict association rules, I cannot be a renter because the community already hit its % of renters to owners ratio.

My father said he would have to add me to the deed to avoid issues with HOA. I will be assuming all costs including mortgage, HOA, etc.

The house is worth about 180K, but owes around 230k. He purchased at market peak but that’s another story. Would adding my name to the deed make this my debt? I plan on opening a practice in about 2 years and do not want a home loan to impact my ability to get lending from a bank.

Any tax repercussions for any of us by doing this? Any reccomendations?
You are only getting your name on the deed not the deed of trust (or mortgage) so you should be fine from a liability standpoint. Think about it: you don't sign the deed. Only your parents (the grantors) do. It wouldn't make sense that you would somehow become liable for a mortgage that you never signed for.

As for taxes that's something to be aware of when there is a big gain and thus potential cap gain tax. Not a problem here it sounds like.

Good luck.

ResearchMed
Posts: 7572
Joined: Fri Dec 26, 2008 11:25 pm

Re: Adding my name to deed (parents house)

Post by ResearchMed » Thu Jun 07, 2018 8:23 am

Are there HOA restrictions against allowing members of the owners immediate family to live there?

Also, if you become an owner, and over time the property appreciates and becomes of value beyond the mortgage, you wouldn't get the stepped up basis when your parents pass. I don't know if this stepped up basis can be prorated by percent ownership (?).

Finally, do you want to have the liability issues?
If so, then make sure you have a good umbrella policy for the "just in case" situation.

RM
This signature is a placebo. You are in the control group.

BillyK
Posts: 6
Joined: Sat Sep 24, 2016 1:30 am

Re: Adding my name to deed (parents house)

Post by BillyK » Thu Jun 07, 2018 10:07 am

Most loans have Due on Sale clauses that can be triggered by transferring any percentage interest in the property. You need to review the loan and/or speak with the lender, since otherwise it could accelerate the loan coming due.

Rupert
Posts: 3784
Joined: Fri Aug 17, 2012 12:01 pm

Re: Adding my name to deed (parents house)

Post by Rupert » Thu Jun 07, 2018 10:14 am

BillyK wrote:
Thu Jun 07, 2018 10:07 am
Most loans have Due on Sale clauses that can be triggered by transferring any percentage interest in the property. You need to review the loan and/or speak with the lender, since otherwise it could accelerate the loan coming due.
+1. Your parent's mortgage company may be able to call the loan due immediately if you go through with this plan. Adding your name to the deed impedes their right to foreclose on the property for nonpayment. Read the mortgage and speak to the mortgage company before doing anything.

wcombat1911
Posts: 25
Joined: Fri Oct 07, 2016 10:09 pm

Re: Adding my name to deed (parents house)

Post by wcombat1911 » Thu Jun 07, 2018 10:26 am

Wellfleet wrote:
Thu Jun 07, 2018 8:08 am
Would it make more sense to for the parents to sell the house and you get your own place?

It's not clear to me why you would want to be somewhat responsible for a underwater house?
My parents pretty much put me through undergrad and professional school. I have very little debt thanks to them. The 2 mortgages are putting a strain on them since my mother lost her job.

This is my way of helping them out. My parents don’t have to sell and take a huge loss. I get a place to live with expenses that my wife and I can easily manage. I wasn’t looking to buy until several years down the road anyway. So I figure why rent from a stranger when I can ‘rent’ from my parents.

wcombat1911
Posts: 25
Joined: Fri Oct 07, 2016 10:09 pm

Re: Adding my name to deed (parents house)

Post by wcombat1911 » Thu Jun 07, 2018 10:31 am

BillyK wrote:
Thu Jun 07, 2018 10:07 am
Most loans have Due on Sale clauses that can be triggered by transferring any percentage interest in the property. You need to review the loan and/or speak with the lender, since otherwise it could accelerate the loan coming due.
I was unaware of that. Thank you very much. Will look into this.

alex_686
Posts: 4015
Joined: Mon Feb 09, 2015 2:39 pm

Re: Adding my name to deed (parents house)

Post by alex_686 » Thu Jun 07, 2018 10:56 am

ResearchMed wrote:
Thu Jun 07, 2018 8:23 am
Are there HOA restrictions against allowing members of the owners immediate family to live there?
I too would double check that. Rules vary by state and association. Where I live the house can still be homesteaded if your immediate relatives live there, and this gets around most rental limits.

Or you can always ask the HOA for a exception. Are the rental limits set by the by-laws or by the board's rules?

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Adding my name to deed (parents house)

Post by megabad » Thu Jun 07, 2018 5:59 pm

wcombat1911 wrote:
Thu Jun 07, 2018 7:38 am
My parents currently have 2 homes. Grandma currently lives in house #1 and they live in house #2. They will be moving back to house #1 soon because grandma will be requiring some at home care.

I have been living in house #2 with them up until about a month ago when I got married. My wife and I will be moving in once they leave, however because of some strict association rules, I cannot be a renter because the community already hit its % of renters to owners ratio.

My father said he would have to add me to the deed to avoid issues with HOA. I will be assuming all costs including mortgage, HOA, etc.

The house is worth about 180K, but owes around 230k. He purchased at market peak but that’s another story. Would adding my name to the deed make this my debt? I plan on opening a practice in about 2 years and do not want a home loan to impact my ability to get lending from a bank.

Any tax repercussions for any of us by doing this? Any reccomendations?
If you want my true recommendation, you should buy the house free and clear from your father. Just hire a real estate attorney and be done with it. If a modestly priced home puts potential business financing out of reach (and I don't think it will) you likely should not be seeking such a large LOC anyway. As indicated in above posts, any other options that I can think of will likely require a complicated discussion between you, your father, the HOA, the deed holder (bank), etc. Also, by owning the home you can use the house as leverage/collateral assuming you will have equity in it.

riverguy
Posts: 446
Joined: Sun May 23, 2010 10:33 pm

Re: Adding my name to deed (parents house)

Post by riverguy » Thu Jun 07, 2018 6:21 pm

megabad wrote:
Thu Jun 07, 2018 5:59 pm
wcombat1911 wrote:
Thu Jun 07, 2018 7:38 am
My parents currently have 2 homes. Grandma currently lives in house #1 and they live in house #2. They will be moving back to house #1 soon because grandma will be requiring some at home care.

I have been living in house #2 with them up until about a month ago when I got married. My wife and I will be moving in once they leave, however because of some strict association rules, I cannot be a renter because the community already hit its % of renters to owners ratio.

My father said he would have to add me to the deed to avoid issues with HOA. I will be assuming all costs including mortgage, HOA, etc.

The house is worth about 180K, but owes around 230k. He purchased at market peak but that’s another story. Would adding my name to the deed make this my debt? I plan on opening a practice in about 2 years and do not want a home loan to impact my ability to get lending from a bank.

Any tax repercussions for any of us by doing this? Any reccomendations?
If you want my true recommendation, you should buy the house free and clear from your father. Just hire a real estate attorney and be done with it. If a modestly priced home puts potential business financing out of reach (and I don't think it will) you likely should not be seeking such a large LOC anyway. As indicated in above posts, any other options that I can think of will likely require a complicated discussion between you, your father, the HOA, the deed holder (bank), etc. Also, by owning the home you can use the house as leverage/collateral assuming you will have equity in it.
How would he end up with equity in it when the house is $50k underwater and the parents can’t afford to make that difference up?

User avatar
dm200
Posts: 18879
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Adding my name to deed (parents house)

Post by dm200 » Thu Jun 07, 2018 6:37 pm

Could be true - but seems odd that family members could not occupy the parents' house. Perhaps check with some sort of "expert" on interpreting the rules (maybe an attorney)?

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Adding my name to deed (parents house)

Post by megabad » Thu Jun 07, 2018 6:54 pm

dm200 wrote:
Thu Jun 07, 2018 6:37 pm
Could be true - but seems odd that family members could not occupy the parents' house. Perhaps check with some sort of "expert" on interpreting the rules (maybe an attorney)?
I would tend to agree with this until OP said that he will take on all expenses for the house. He is essentially paying for the privilege to live in a house in which he has no interest (unless bank allows transfer, but most mortgages are not assumable). This is pretty much the definition of rent is it not? If living there free of charge, I would say everything is hunky dory. That said, I might try what is being proposed without notifying HOA anyway.
riverguy wrote:
Thu Jun 07, 2018 6:21 pm
How would he end up with equity in it when the house is $50k underwater and the parents can’t afford to make that difference up?
Just my views but if father is underwater and struggling, this is separate from the home situation in my mind. If father needed financial assistance (especially if he generously supported a child's education) than I would assist him. This is completely separate from my transaction on the house. A house is not worth more because you love your father and he is underwater on it. As such, I would get a conventional mortgage to cover the home purchase and presumable have equity in relation the value of the house. However, as I said, I would still assist my father separately (so he would not necessarily take a net loss on the transaction).

User avatar
c.coyle
Posts: 130
Joined: Thu Aug 03, 2017 5:10 pm
Location: Eastern Pa.

Re: Adding my name to deed (parents house)

Post by c.coyle » Thu Jun 07, 2018 7:11 pm

wcombat1911 wrote:
Thu Jun 07, 2018 7:38 am
. . . Would adding my name to the deed make this my debt? I plan on opening a practice in about 2 years and do not want a home loan to impact my ability to get lending from a bank. . . .
No, unless you sign the underlying mortgage note as an additional mortgagor, or if you otherwise personally guarantee or assume the debt. BUT, you become a part owner of a house that is 100% encumbered, meaning you have no equity.

In my state, a "mortgage" consists of two documents. The mortgage note is the debt, the IOU, the promise to repay. The mortgage is the separate document that secures repayment of the note by placing a lien on the property.
VTSAX - 40%, VTIAX - 10%, VBTLX - 50%

User avatar
JPH
Posts: 810
Joined: Mon Jun 27, 2011 8:56 pm

Re: Adding my name to deed (parents house)

Post by JPH » Thu Jun 07, 2018 7:40 pm

I'm not an expert, but I recall reading that parents should never put their child's name on their deed. The reasoning is that if done, then creditors, divorced spouse, IRS, lawsuits, & whatever can make trouble for the parents by coming after the child's share of the house. Maybe some expert can comment.
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

User avatar
dm200
Posts: 18879
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Adding my name to deed (parents house)

Post by dm200 » Thu Jun 07, 2018 7:42 pm

JPH wrote:
Thu Jun 07, 2018 7:40 pm
I'm not an expert, but I recall reading that parents should never put their child's name on their deed. The reasoning is that if done, then creditors, divorced spouse, IRS, lawsuits, & whatever can make trouble for the parents by coming after the child's share of the house. Maybe some expert can comment.
That is my understanding as well. I might amend to "ALMOST never".

clown
Posts: 98
Joined: Sun Jan 03, 2016 2:04 am

Re: Adding my name to deed (parents house)

Post by clown » Thu Jun 07, 2018 7:56 pm

I suggest stepping back and looking at the bigger picture. The likely reason for the HOA's restrictions on renters is to enhance property values by keeping them owner-occupied rather than occupied by outside renters. Stated another way, the neighborhood's owners (HOA's members) don't want values to deteriorate as a result of renters who don't care about the property and don't maintain it in the manner consistent with having pride of ownership. However, this situation is entirely different. You are not an outside renter, but a member of the family whose elders own the home. The HOA board, with a fully understanding of the facts, can probably make a waiver for you -- or perhaps submit it for a membership vote at the annual HOA meeting, at which most members do not attend.

This would relieve your relatives of the expenses, avoid the problem of owning an underwater property (which your lender down the road would look at), and avoid the issue of liability.

riverguy
Posts: 446
Joined: Sun May 23, 2010 10:33 pm

Re: Adding my name to deed (parents house)

Post by riverguy » Thu Jun 07, 2018 8:10 pm

megabad wrote:
Thu Jun 07, 2018 6:54 pm
dm200 wrote:
Thu Jun 07, 2018 6:37 pm
Could be true - but seems odd that family members could not occupy the parents' house. Perhaps check with some sort of "expert" on interpreting the rules (maybe an attorney)?
I would tend to agree with this until OP said that he will take on all expenses for the house. He is essentially paying for the privilege to live in a house in which he has no interest (unless bank allows transfer, but most mortgages are not assumable). This is pretty much the definition of rent is it not? If living there free of charge, I would say everything is hunky dory. That said, I might try what is being proposed without notifying HOA anyway.
riverguy wrote:
Thu Jun 07, 2018 6:21 pm
How would he end up with equity in it when the house is $50k underwater and the parents can’t afford to make that difference up?
Just my views but if father is underwater and struggling, this is separate from the home situation in my mind. If father needed financial assistance (especially if he generously supported a child's education) than I would assist him. This is completely separate from my transaction on the house. A house is not worth more because you love your father and he is underwater on it. As such, I would get a conventional mortgage to cover the home purchase and presumable have equity in relation the value of the house. However, as I said, I would still assist my father separately (so he would not necessarily take a net loss on the transaction).
I guess whatever you want to call it but money is still fungible. Someone is eating a $50k loss. Whether you call it help or not doesn’t change that.

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Adding my name to deed (parents house)

Post by megabad » Thu Jun 07, 2018 9:50 pm

riverguy wrote:
Thu Jun 07, 2018 8:10 pm
I guess whatever you want to call it but money is still fungible. Someone is eating a $50k loss. Whether you call it help or not doesn’t change that.
I agree "money" is "fungible" in this case. All in how you view it. In any case, the recommendation to purchase the home outright allows for a simple transaction and no ambiguity with the HOA.

Maybe I am just less emotionally attached to houses than most, but I don't view it as "eating a loss", just a business transaction between banks. If I buy my new ferrari for $300k and then I sell it in five years for $150k, I don't think I "ate a loss", I think I got to drive my ferrari for five years and now I will sell it at the highest price I can get for it and buy a new Lamborghini instead.

wcombat1911
Posts: 25
Joined: Fri Oct 07, 2016 10:09 pm

Re: Adding my name to deed (parents house)

Post by wcombat1911 » Fri Jun 08, 2018 12:22 pm

Thank you to everyone who has responded. I am going to speak directly with the HOA president to see if my ‘moving’ in would be an issue. I will try to avoid adding my name to the deed and look for another way to do it.

With regards to the house being 50K under, I am not too concerned about that. Sure I could prob by a house and have immediate equity but that would require a down payment and other expenses that I’d rather not spend at the moment.

alex_686
Posts: 4015
Joined: Mon Feb 09, 2015 2:39 pm

Re: Adding my name to deed (parents house)

Post by alex_686 » Fri Jun 08, 2018 1:01 pm

Have you asked the bank if you could "assume" the mortgage? That is, take your parents name off of the deed and mortgage and replace it with yours. That might solve the technical issue of being upside-down on the equity. Not sure I would advocate buying a place with negative equity but it might be a option.

afan
Posts: 3920
Joined: Sun Jul 25, 2010 4:01 pm

Re: Adding my name to deed (parents house)

Post by afan » Fri Jun 08, 2018 1:51 pm

But the OP did not want to have a debt, due to plans to borrow money to start a practice in a few years. Assuming the mortgage would defeat that goal.

The easiest solution would be if it is OK with the HOA for the OP to do exactly what desired. Live there, pay the expenses, but not become the owner.

If I understand correctly, the parents can't sell the home because that would require making up the difference between sale price and the amount owed on the mortgage. So selling to anyone at the current market price is not possible.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Post Reply